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Yancoal to use its scale to improve margins

SIGNIFICANT scale, a relentless focus on driving asset performance and premium pricing for its coal products is allowing Yancoal to operate at industry-leading cash margins, according to a company presentation.

After its US$2.69 billion acquisition of Coal & Allied from Rio Tinto, Yancoal had realised and would continue to improve operational synergies by maximising adjacency benefits.

"The benefits include the potential to increase marketable reserves and mine life as well as reduce strip ratios and other costs; enhance equipment utilisation and productivity;coal blending opportunities; and reduce take-or-pay liabilities through optimisation of logistics and port allocation," the presentation said.

"We continue to seek more favourable terms across various procurement contracts."

Following the acquisition Yancoal formed an unincorporated joint venture with Glencore in respect of HVO with Glencore owning 49% and the joint venture being managed by a manager, HV Ops, which is appointed by Yancoal and Glencore.

Yancoal also entered into a binding agreement to acquire Mitsubishi's 32.4% interest in HVO for US$710 million and Glencore subsequently acquired Mitsubishi's 32.4% interest in HVO and an additional 16.6% interest from Yancoal for US$429 million plus a share of the royalties payable by Yancoal to Rio Tinto.

"Yancoal's partnership with Glencore is also intended to provide substantial incremental value potential through realisation of synergies," it said.